Do I need to be approved for the Disability Tax Credit before I set up an RDSP?

Another question that has been coming up frequently is around applying for the Disability Tax Credit. The approximate time it takes to process the DTC application is around 6-8 weeks (approximate), and this has many people wondering whether they can set up an RDSP before they apply for and/or receive the DTC.

The good news is that you will be allowed to set up an RDSP before you have the DTC designation, as long as you are approved for the DTC in the same year you set up an RDSP.

The Income Tax Act states that you must be eligible for the DTC in the taxation year for which the plan is opened, and does not state that you must be DTC eligible before you open an RDSP. This is an important distinction as many people will be worrying as to whether they can open an RDSP before the March 2nd deadline to receive 2008 Grant and Bonds.

This being said, you will also want to consider the implications of setting up an RDSP before you are approved to receive the Disability Tax Credit. If you were to apply for the DTC after having set up an RDSP, and you were deemed ineligible to receive the credit, the plan would not be certified and and any income generated in the plan would be considered income for that year.

So, if you can, make sure to apply for the DTC and receive confirmation of your certification before setting up an RDSP. If this is not possible, it is important to be aware that you can still set up an RDSP, but that you must apply and receive the DTC in the same year.

31 Responses to “Do I need to be approved for the Disability Tax Credit before I set up an RDSP?”

If you have the DTC, most of the work is done! The next step is simply going to a financial institution, like your bank or credit union, to open your RDSP. If your bank doesn’t know much about it, ask to speak to a manager or try a different bank.

Angela Browne

As somebody who has handled disability appeals, including DTC appeals, it is still very inequitable between persons with physical impairments and those with invisible disabilities.

While the DTC does not use employability as a determination for any specific impairment, this whole fact emerges as a key differential between persons with physical disabilities and persons with psychiatric, cognitive and learning disabilities.

A man that uses a wheelchair for a spinal injury for example that is a CEO of a medium sized company can qualify readily for the DTC and his capacity to perform his job is not put to question. However, if a female with bipolar affective disorder applies, who is licensed to be an accountant and works part-time in that profession, will likely be disqualified as the definition for “mental disorder” for example, negates the likelihood that she can do any work of this nature at all to rationally participate in her profession. There are still “gray areas” if she were to attempt to qualify under the “two or more” criteria, as this would imply she would have to have substantial physical issues as well.

Another area involves persons with disabilities that prevent them, for example, from driving a motor vehicle. This capacity is not specifically identified, but a person with this incapacity is severely financially penalized if their disability does not otherwise grant them under blindness, or some other disability criteria.

There needs to be a constitutional challenge of sorts to address these inequities, as this only creates a disproportionate access to a program that will now slant against persons with invisible disabilities. While a person has the right of appeal to Tax Court regarding his or her denial for the DTC, I recently learned that if one has a nil assessment, they cannot appeal this denial through this avenue. They would have to lodge a case through a much more expensive federal court action.

This was certainly a gap in the drafting of this particular credit and appeal procedure therein, given the introduction of the DTC being the sole gateway into the RDSP program.

Hi Cathy,
Our understanding is that the processing of the Disability Tax Credit is taking between three and six months. Our understanding is also that you will not be notified earlier or later depending on whether or not you are getting the credit and the refund.

cathy

Yes Hi. i’m from Ontario. I am eligable for 2005-2010 for the Disability Tax Credit refund. i have been waiting going on four months. If I was’nt getting a refund, i would of been notified by now right. I am so anxious, and not knowing how much or when.
Thank you.

Verna

I have just qualified for PWD status in BC and will be applying for the DTC when I next see my doctor. I agoing to be 50 in Feb so I know I can’t get matching amounts, but I’m wondering if you know whether I can deposit 2010’s tax refund in an RDSP and not be penalized by welfare?? I had to cash out my RRSPs ( about $7000 worth ) when I applied for benefits in order to be eligible.

I won’t have any other income from 2009 other than the RRSP and assistance, so I will get the 10% withholding tax back and rather than having it deducted from my monthly cheque it would be nice to put it back into savings for the future.

Thanks
(great site by the way, I like that posts can be read in order as it builds a good knowledge base just reading through them)

Hi Verna,
As soon as you deposited the money into the RDSP it would be exempt from any PWD asset and income tests (and would not be clawed back). The question you will need answered is whether you can deposit the money directly into your RDSP. My assumption would be that you can, as you usually receive the tax refund in the form of a cheque, and could simply deposit the cheque into your RDSP (with the money never sitting into your bank account). If you can verify that a tax refund can be deposited directly there shouldn’t be a problem.

Hi Dean,
Unfortunately, you are correct. Your sister cannot receive the government contribution as she is past the age of 50, but she is still allowed to receive personal contributions up until she turns 60.

Cathy

Finally after 2 months of confusion I received the completed DTC form from my daughter’s Psychologist. I just mailed it yesterday and am hoping that it is approved for 2009 as well as the past 10 years. I want to open an RDSP for her before the end of the year. However, it won’t likely be approved for at least 4 months in the province in which I live.

If she is approved for the past 10 years I’m thinking that it will be okay to open the RDSP now. Am I understanding this correctly?

By the way, this is a great site with lots of info! Thanks for making it available.

Hi Cathy,
It’s a very good question and I am glad you asked. According to the legislation, as long as you receive the Disability Tax Credit in the year you open the RDSP you are okay. Unfortunately this means that you would be required to have the DTC status confirmed by the end of this year to be able to open an RDSP and get the Grant for 2009. I think you have a few options. One, you could open up an RDSP and hope that the DTC status is confirmed before the end of the year, or between the time the RDSP application gets processed (which might be a few months) by the federal government. The danger with this option is that your RDSP could be collapsed and the money returned to the beneficiary of the RDSP, and the bank may charge a fee if an RDSP is collapsed within the first 12 months (you will want to check with the bank about this fee).

The other option is to wait until the DTC status is confirmed, and then open up the RDSP at that point, potentially missing the 2009 Grant and Bond. The important questions you will need to ask are:
1) Is it essential that you receive the Grant and Bond for 2009? When I ask this question I realize that for most people a $4,500 is an opportunity you do not want to miss.
2) Are you okay with the RDSP potentially being collapsed, paying the fee, and then having to open up the RDSP again? Check with your bank to see what the fee, if any, would be. From what I have heard, some banks have a fee if your RDSP is collapsed within 12 months.

My apologies Cathy, as I would love to be able to tell you yes or no, but in this case it really depends on your comfort level and how badly you would want to get the Grant and/or Bond for 2009.

Feel free to post again if you want me to clarify anything I have said above. I would suggest you also speak to a financial advisor at your bank.

Cathy

Thanks Doug for the quick and excellent response. I’ve decided to open the RDSP at TD/Canada Trust and will ask if there is a fee for collapsing the plan if needed. If the fee isn’t too large I’ll take my chances and hope that she gets approved. The bond and grant money is a nice chunk of cash and worth the gamble. Since I’ve already paid a psychologist to reassess my daughter and complete the DTC form, if there is a fee it will likely be small compared to the money I’ve already spent.

Cathy

In case anyone is interested, I called the 1-800# for TD/Canada Trust today and was told that it is too late to open an RDSP for 2009 and receive the bond/grant. Apparently it takes 5 business days for the application to be processed and there are only 2 business days left in the year. Darn, I should have gone to the bank last week instead of baking for Christmas. 🙂

Lillian

In regards to the Disability Tax Credit and the Lifetime Disability Assistance Payments, I also have a few questions…

… how do people with mental health issues and no physical issues qualify if the condition is being managed by medication in order for them to function and work? The fact still remains that they do have a very real disability and that they wouldn’t be able to function and work if not for the medication?

… when people with no bonds/grants turns 60, whatever is in the RDSP is disbursed according to the LDAP schedule, correct? If that is the case, is the annual payment made in one lump sum or can it be disbursed quartered or monthly? For example, Bob, who is on BC disability assistance, only has a $3000 asset level. If Bob either gets a $10,000 LDAP or withdraws $10,000 from the RDSP and puts the money into his bank account, thus rendering his account to a total of $33,000, would he be penalized by the Ministry of Housing and Social Development for having assets in excess? I understand that the money in the RDSP is exempt and that the money can be withdrawn to spend as they please, but what if they decide to withdraw that RDSP money/receive the LDAP lump sum payment and put it into their bank account? This is particularly relevant for people between the ages of 60-65 as they will still be on provincial disability assistance with the $3000 asset level.

…can people with no bonds/grants, once they turn 60, withdraw as much money as they want or do they have to adher to the LDAP amounts?

1) This is a very good point, and is one of the concerns with using the Disability Tax Credit as the criteria for setting up an RDSP. From what we have heard, the Canadian Mental Health Commission has been looking at the DTC and how it excludes many people with mental health issues or episodic disabilities. This will be an issue that we will need to track, and potentially do some advocacy work on. If you hear that a lot of people are being denied for the DTC as a result, can you let me know?

2) Our understanding of the LDAP is that once someone turns 60, this amount would automatically start being withdrawn from the RDSP. In terms of the annual/quarterly/monthly pay-out, this would depend on how you had set it up with your bank. As long as that amount was withdrawn within the year, there would not be a problem with the RDSP. As for BC Disability Assistance, as long as you spend the money in your bank account (anything above $3,000) within the month you receive it, it will not affect your benefits. As well, the Ministry has indicated that they will be treating the RDSP payments with a certain amount of flexibility, so if money has accumulated over a few months in the person’s bank account, to be used for a bigger purchase (like a down-payment on a house), it will not affect their BC disability assistance.

3) If an individual has contributed more into their RDSP than the government, or have not received any government funding into their RDSP, they would be able to withdraw as much as they wanted from their RDSP once they turn 60 (and before that, as long as they adhered to the 10 year rule).

Jan

I was really happy when I first heard of the savings plan. But am frustrated to hear that if you do not qualify for the Disability Tax Credit you do not qualify.

I am on a BC Disability 2 pension. About 2 years ago my doctor of over 10 years filled out the form for me since I was working part time (1 or 2 days a week) and I was looking forward to a tax refund. However, My Disability Tax Credit form was denied because I was working and wanted to be able to work if I could.

I don’t know why the Government doesn’t recognize how hard it is for a disabled person with mental health issues to work, yet (not just in this situation) I am constantly penalized for trying.

Mike

One quick comment on DTC. Prior to 2008 the criteria to obtain a DTC appeared (at least in my memory) to lean heavily towards qualifying the physically handicapped, and being rather difficult for the mentally handicapped to qualify, especially those with high functioning autism (eg Asperger’s). When I first read about the RDSP in early 2008 I wrote to Jim Flaherty (as anybody can via the ministry website) and asked for the DTC to be amended. The current DTC criteria allowed my son to now qualify.

Doug, is this in fact correct that there is a new version of the DTC to coincide with the RDSP availability? If so is there an opportunity for more public education on this specific topic?
I really want to thank PLAN for getting us where we are today! Great job guys.

Hi Mike,
There was a review a few years ago to that effect that did allow for “two or more significant restrictions”, but no official review as a result of the RDSP. From what we have heard from families and professionals who deal a lot with DTC applications, there has been an unofficial expanding of the criteria (because of demand from the RDSP). Hence, why we are encouraging people to apply even if they were denied in the past. This is completely based on observations and I have not heard any official confirmation.

Dennis

The withdrawal rules are quite clear. The only things that will impact payments are the beneficiaries age, the life expectancy used in the formula and the amount of money in the RDSP. I think that Ms. Broeze is making a generalization based on some sort of an average RDSP.

“While the rules on withdrawals at age 60 are not yet clear, it seems that they will place a $1,000 a month limit on RDSPs, something that does not apply to Henson trusts,” she says.

Where is this coming from? The rules on withdrawals, lifetime maximums etc are quite clear? This is the first I’ve heard of a $1,000 monthly cap and that would change the whole contribute more than government strategy to free up the funds.

I agree with you that I have no idea where she is coming from with this statement. The Ministry of Community and Social Services has clearly outlined that

“Changes to Ontario’s social assistance rules will make sure that both RDSP assets and withdrawals are fully exempt. This means: 1) RDSP contributions do not impact eligibility for social assistance, 2)People on social assistance can take money out of an RDSP without affecting their social assistance payments.

The rules on withdrawals at age 60 are clear and will depend on how much money is in the RDSP, which in a lot of cases will result in payments above $1000. I would not be concerned about this article (although it will discourage some people who read it from setting up an RDSP), as there has been no indication that there is a $1000 cap.

Mike

Re the DTC and tax years. It is retroactive. I only recently, in 2009, got the DTC for my son. If you then go to the CRA website and look at “my account” (for which you need to get a Federal e-pass) you will see how many years back they have already given you for the DTC. The DTC application form has a place to record the year since when the disability started (not necessarily the same as year diagnosed). You need to establish this year with your doctor when approving the form.

Mike

Be careful with the BMO application form! I took my form to my local branch to establish a BMO “profile” as per their instructions. They kindly offered to fax it for processing. The fax number listed in the branch instructions page that comes with the RDSP form is incorrect. After I heard nothing from BMO one week after going to my local branch I called the RDSP folks at BMO and they asked me to fax it again to a specific number, not the one listed in the application forms.

Shane

Reading this post, it would appear that, for 2008 at any
rate, you would need to already have the DTC designation.
Because though an RDSP opened today is 2009, it is
considered 2008 due to the extended year-end and in
order to have the DTC for the 2008 tax-year when applying
today, it would need to be retroactive to previous years
because the taxation year-end is still Dec 31.